A few Irish stocks shine amid market selloff

Ireland’s benchmark index is still more than 70% below its peak

By

SimonKennedy

DUBLIN (MarketWatch) — Champagne corks were popping across Dublin in February 2007 as Ireland’s ISEQ stock index briefly topped the key 10,000 level for the first time ever — a clear indication for some investors of the success of the economy and in particular the banking system that fuelled growth.

Two years later, anyone who took 10,000 as a buy signal had lost more than 80% of their money as the index crashed back below 2,000. If they’d put their cash in Bank of Ireland (BIR)
IRE, +0.31%
or Allied Irish Banks PLC (AIB)
AIB, +0.31%
the losses would have been 99%.

The downturn started with the bursting of the country’s property bubble, swiftly followed by a crisis for the banking sector, which had funded the boom with construction loans that had little chance of being repaid.

Now Ireland is planning 15 billion euros ($20.7 billion) of spending cuts and tax increases in a last-ditch effort to persuade markets that it can pay its debts. See story on Ireland’s budget crisis.

The ISEQ is still more than 70% below its 2007 peak and since the start of the year it has fallen in value by around 10%, while the Stoxx Europe 600 index (STOXX600) has risen 7%.

Despite those heavy losses, a handful of Irish stocks have recovered to hit fresh highs, along with some others that strategists see as potential winners in the coming months.

Bookmaker Paddy Power PLC (PLS) and food producer Kerry Group PLC (KRZ) are among the strongest performers, with both stocks hitting fresh all-time highs in recent days, said Stephen Taylor, strategist at Dolmen Securities.

NCB Stockbrokers Strategist Bernard McAlinden said Ryanair Holdings PLC (RY4B) was another stock that has been at least partly able to avoid Ireland’s domestic woes.

“The first thing that strikes you about these Irish companies is that they don’t have much exposure to Ireland, that they’ve outgrown it,” he said.

That might be a slight exaggeration for Paddy Power, where Irish stores still account for a quarter of bets staked, but Chief Financial Officer Jack Massey said it’s the group’s online operations, as well as its expansion into the U.K. and a recent Australian acquisition, that are driving growth.

Overseas growth

Like-for-like performance in the most recent period showed the total amount staked in Irish stores fell 3%, Massey said. Paddy Power has been able to increase its market share, but those gains mask a tougher market for the industry as a whole.

“In terms of the industry overall, the complete decline in the market has probably been 20% top to bottom from 2007 to 2010,” Massey said.

There’s a tendency among some commentators to assume betting companies are immune to recessions, but that’s not the case, Massey said. Still, he does expect the Irish business to eventually come out of the recession stronger due to its bigger market share.

The key for an improvement will be the restoration of consumer confidence.

“If people can have reasonable confidence, then they can go back about their normal business, they can allow themselves some modest levels of entertainment, be it on a drink or on a bet,” Massey said.

Dolmen’s Taylor said the company has been able to grow despite tough conditions in its home market in part because of “fantastic marketing” — which has included the world’s biggest strip-poker tournament in London and setting up a betting pitch in the Vatican to take bets on who would be the next pope.

One potential worry for the company, other than the broader economic cloud hanging over Ireland, is taxes. The upcoming budget plan creates a risk that the government could hike levies on the group, Taylor said.

Oil opportunities

Besides the better-known stocks on the Irish market, Dolmen Stockbrokers analyst Brian Gallagher said there are a number of oil companies listed in the country that have managed to access new funding over the last year and are now starting to pursue their exploration plans.

He said stocks such as PetroNeft Resources PLC (P8ET) and Petroceltic International PLC (EG5) are “in a bubble of their own.”

Shares in PetroNeft, for example, have nearly tripled over the last 12 months and rose nearly 10% on Tuesday after the company announced the discovery of a new oil field in Russia.

“There could be lots of potential catalysts for these stocks at the moment, though whether they turn out well or not is partly down to luck,” Gallagher said.

“Investors are getting hammered in the financials and getting hammered in materials, but this may be a bright spot on the horizon for them,” he added.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.